Who’s Responsible? How the “Independent Contractor” Dodge Guts Employment Protections

Yves here. Even though most readers are familiar with the efforts to force “gig economy” players to step up and assume employment obligations when they exercise significant control over their workers, these “independent contractor” relations are widespread. This article explains how employment laws already had significant failings and these new work relations make it even more important to revise these regulations.

By Tanya Goldman,Senior Policy Analyst and Attorney, Center for Law and Social Policy (CLASP) and David Weil, Dean and Professor, Heller School of Social Policy and Management at Brandeis University. Originally published at the Institute for New Economic Thinking website

Dynamex is a nationwide courier and delivery service offering on-demand pickup and delivery to individuals and businesses such as Office Depot and Home Depot. In 2004, it reclassified its California drivers from employees to independent contractors.[1] As a result, California drivers were no longer eligible for significant labor and employment protections, including minimum wage guarantees, protections against discrimination, and eligibility for safety-net programs, such as workers’ compensation and unemployment insurance. After Dynamex’s re-classification, drivers had to provide their own vehicles and cover their own taxes and transportation expenses, including paying for fuel, tolls, vehicle maintenance and insurance. Drivers could also sub-contract deliveries and make deliveries for other companies.

While the above is a standard setup for independent contracting, working with Dynamex also involved obligations that resembled employment rather than independent contracting. Although people driving for Dynamex used their own cars and trucks, for some customers they were required to attach the company’s decals to their vehicles during deliveries. Drivers also had to buy and wear Dynamex shirts and badges. The company required certain drivers to buy a Nextel cellphone for communications with Dynamex; receive deliveries through Dynamex dispatchers at Dynamex’s discretion, without a guaranteed number or type; and notify Dynamex to reject an offered delivery or be liable for any losses to the company. Dynamex still obtained the customers, set the rates customers were charged for delivery services, and negotiated the amounts drivers would receive. Drivers usually could set their own schedules and routes, but they had to both provide Dynamex notice of the days they would work and complete all assignments the day they were assigned.

The work done by Dynamex drivers represents a mix of delegated responsibility that combines characteristics of independent-contractor service providers—figuring out routes, scheduling, and paying for one’s expenses—and of employees—wearing a company logo, being issued specific equipment, and having rates, customers and delivery requirements set by the party for which one works. Dynamex drivers inhabit a grey area of independent contracting and traditional employment. And, Dynamex’s practice is hardly unusual in this respect.

A significant amount of the work in the United States and many of the world’s economies is done in a similar mix of conditions. Many businesses have restructured to treat workers like employees (specifying behaviors and then closely monitoring the outcomes that are crucial to their consumers and investors) but to classify workers as independent contractors (engaging them at an arms-length and cutting them off from rights and benefits tied to employment). These arrangements continue to blur the boundaries of what marks “employment.” In 1925, according to the Supreme Court, “a ‘contract of employment’ usually meant nothing more than an agreement to perform work.”[2] Dictionaries usually considered “employment” as synonymous with “work.” Today, such assumptions no longer hold.

The increasingly ambiguous question of what constitutes “employment” is critically important. Employment is the basis for many of our fundamental workplace protections, including assurances of pay for work done, provision of a safe workplace, and protections against discrimination and sexual harassment. Further, benefits provisions and basic safety-net policies like unemployment insurance and workers compensation are also linked to employment. Finally, wage and salary setting itself are powerfully affected by employment responsibilities.

As modern business structures pressure the question of “employment,” they expose faults in the current legal structures that premise eligibility for worker protection on designated employment relationships. To determine whether an employment relationship exists, statutes and courts have focused on the question of control. However, the control inquiry is problematic. First, questions of control, derived from tort law notions of vicarious liability, are not always consistent with fulfilling the intended purpose of worker protection laws. Second, common-law development has made identifying an employment relationship unpredictable, decreasing clarity of employer responsibilities and compliance with the law.

Thus, the advent of modern business structures exposes flaws in both the design and administration of worker protection laws. The core purpose of worker protection laws is to address the problem that work relationships are inherently unequal. In most cases, workers do not have sufficient individual bargaining power to protect themselves against socially unacceptable outcomes in the labor market, especially in the absence of collective bargaining power. This vulnerability creates a role for government to protect workers. States recognized this role in passing laws at the turn of the 20th century regulating child labor and maximum hours as did (belatedly) Congress in enacting New Deal legislation like the Fair Labor Standards Act.

Current conditions show, however, that the design and administration of these worker protections undermine their purpose. Most of our critical workplace protection laws were flawed at the outset, both because they excluded certain categories of vulnerable workers and because they conditioned access to critical rights and protections on an employment relationship. Additionally, the implementation of these laws further constricts their efficacy by determining employment relationships based on unpredictable and underinclusive inquiries like retained control. Current business practices highlight these faults as businesses increasingly rely on independent contractors, an aspect of the fissured workplace, shifting greater risks from employers onto workers. This means that worker protection laws fail a great and growing number of workers. Many independent contractors—both legitimately classified independent contractors and those employees that companies have misclassified as independent contractors—lack the bargaining power and leverage needed to protect their own and societal interests.

We argue that this situation creates an urgent need to rethink our system of worker protections by providing all workers some core protections and by enhancing workers’ access to other key laws. We contend that the central question involving worker protection should not be “what constitutes employment?” but rather “who is responsible here?” Workers deserve more protections regardless of employment status. We assert that this will reduce misclassification and create incentives for businesses to base their decisions on true tradeoffs rather than on regulatory arbitrage.

We begin by setting the stage for urgent action. We review evidence that the “present of work”—let alone “the future of work”—provides less and less of the value created by work going to those who do it while more and more of the risks associated with work are shifted onto them and away from those who derive economic returns from that work. We then focus on the history of assignment of responsibility and how that poorly comports with the way that industries in our economy operate. After reviewing several responses that have been proposed in recent years, we put forward a new Concentric Circle framework for assigning rights, responsibility, and protections in the workplace.

The Concentric Circle framework posits an inner core set of rights for workers, a middle circle set of presumptions about employment, and an outer ring of benefits. First, as the inner core of our proposal, we maintain that certain central rights and protections should not be tethered to an employment relationship, but to work itself. Thus, we posit that the right to be paid a minimum wage and compensated for work; freedom from discrimination and retaliation; access to a safe working environment, and the right to associate and engage in concerted activity belong to all workers, not just those employers classify as employees (as opposed to independent contractors).

Second, we argue for a middle circle rebuttable presumption of employment to address those rights that remain exclusive to employees (and not available to independent contractors). We suggest that there should presumptively be an employment relationship, with businesses bearing the burden of proving that no employment relationship exists. As part of this presumption, we draw upon existing legal doctrines used to determine employment relationships and propose a workable update. Finally, at the outer ring of our framework we suggest additional mechanisms to give workers access to and incentivize companies to fund core workplace benefits that promote worker mobility and social welfare.

After reviewing—and rejecting—several recently proposed alternative responses to this problem, we argue that the Concentric Circle framework offers a superior policy response. It better assigns rights, responsibilities, and protections in the workplace and labor markets. At the same time, it provides businesses the proper incentives to make decisions regarding compensation; investment in benefits and work conditions; and employment status.

New technologies, the changing expectations of employees and the dynamic nature of business will always affect the nature of work. This has been true throughout economic history. But this does not mean we should forget or dismiss the underlying reason for workplace laws that go back to the beginning of the twentieth century: the recognition that workers need protections because the power to bargain is almost always skewed toward the employer. This imbalance has not evaporated in the fissured workplace of today, nor will it in the foreseeable future. Although we may need to assess whether the ways we provide protections are effective, the underlying commitment of public policies to fairness in the workplace and society must remain.

____

[1] After the drivers sued, the California Supreme Court reconsidered, in Dynamex Operations West Inc. v. Superior Court, 416 P.3d 1 (Cal. 2018), the appropriate test for determining whether drivers are employees or independent contractors for purposes of California wage orders, which impose obligations relating to minimum wages and maximum hours. All facts in this section are from the Dynamex decision.

[2] New Prime Inc. v. Oliveira, 139 S.Ct. 532, 539 (2019). Justice Gorsuch further noted that the Railroad Labor Board in 1922 interpreted “employee” to include anyone “engaged in the customary work directly contributory to the operation of the railroads.” Id. at 543.

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18 comments

  1. DHG

    Many companies are committing outright fraud in designating workers independents. They do it for personal financial gain and couldn’t care less about you the worker. If you are told when to do something and are forced to buy things for the advertising of the company guess what you are an employee plain and simple.

    Reply
  2. Felix_47

    The article points out ‘As modern business structures pressure the question of “employment,” they expose faults in the current legal structures that premise eligibility for worker protection on designated employment relationships.’ The modern business structures were developed for the express purpose of outsourcing employee risk and costs. Does modern even fit? Would it be better to say ‘neoliberal’ business structures?

    Reply
  3. Michael Fiorillo

    Many years ago I worked as an organizer and business rep in the musician’s union (Local 802, AFM), trying to maintain wage and working standards in the original gig industry, from which the term itself is derived. With very few exceptions, professional musicians piece their livelihoods together from many different sources, but the issue always was and remained “Who is in control?” Who tells you where and when to show up? Who (literally) calls the tunes?

    Not to compare in any way conditions in the music industry thirty years ago – a weird conjugation of global corporate and mom and pop, with some late medieval guilds thrown in – and today’s globalized transportation system, but just as in the past, workers in particular industries will have to organize, form basic sets of demands, and have union recognition strikes that shut employers down until they’re agreed to.

    The legislation and laws, necessary as they are, will follow organized mass action and disruption, not the other way around.

    Reply
    1. Arizona Slim

      Yours Truly has tried to join a union that represents workers in another part of the frig, er, gig economy. I even went so far as to complete an application and was told that I would get a bill for the membership dues.

      That was more than six months ago. I have yet to receive that bill.

      I yearn for a union with the level of competence that the AFM has.

      Reply
      1. Michael Fiorillo

        Arizona Slim,

        The AFM mostly doesn’t have that level of competence; in fact, it’s barely hanging on, and the pension fund is in ongoing crisis due to the decline in union employment.

        We were in NYC, with a newly-elected insurgent administration, staffed by old school labor leftists, in an industry with at least the vestiges of a union culture, and employers who were already hiring union members. The small scale end of the music business is unusual, in that one or two well-respected and in-demand players can sometimes almost by themselves have the job made union, rarely the case elsewhere.

        Without knowing the details of your situation, were you seeking to join the union, or organize your shop? There’s a big difference. Not to place that burden on you, because many/most unions gave up organizing years ago (in part because the current system makes it almost impossible), but the only way forward is by patient, department-by-department, shop-by-shop and industry-wide organizing. It’s the labor equivalent of door-to-door political organizing.

        Find a small, trustworthy core of like-minded people on the job, and as a committee (stealthily) try to find a union that believes in organizing and devotes resources to it – you’re in southern Arizona, if my memory of past comments is correct, which is not a union-dense region, so bear that in mind – and see if they’ll make a commitment to you.

        The United Electrical Workers (UE) is an independent union that represents disparate bargaining units in a variety of industries, and is a rank and file-driven union. If they are active in your region, you might want to contact them.

        Every union you talk to will say, “You are the union,” and while I’ve had more than a little experience with union leadership saying that in disingenuous and dishonest ways, it’s also true, especially when you’re trying to turn an unorganized industry.

        Reply
  4. bmeisen

    Thanks for this helpful summary. While surely the US isn’t the “hire and fire” paradise that many outsiders think it is, the differences between US labor relations and those in for example Germany are striking – differences that may significantly influence the national impacts of corona. The definition of employment is central to the comparison. I can’t discuss technical details but I can offer observations.

    Expansion of gig relations in Germany have been hindered by at least 2 legal obstacles: first the phemomenon of “feste Anstellung”, or the unlimited employment contract. This offers broad guarantees and benefits that are limited only by the formal availablility of the employee and that define a relationship that is difficult for the employer to terminate. This relation is available to public as well as private sector employees and it remains the default labor relationship in Germany: millions of workers in Germany are employed under these conditions. I suggest that because it is so widely accepted, employers struggle to attract employees via more narrow conditions from the employee’s perspective, e.g. gig relations. A subsidiary form of German employment is the “befristete” contract in which guarantees and benefits are limited to a specific amount of time. These contracts do not define a “freelancing” or gig relationship. They provide broad protections and benefits for a limited period, including those that “feste” employees receive: paid holidays, paid vacation (mandatory 20-25 days, often 30), sick leave, parenting leave, unemployment insurance, subsidized health insurance, etc.

    Secondly, contractor and sub-contractor relationships, aka freelancing, are possible when a party can demonstrate independence from individual partners. In other words, a freelancer is “scheinselbständig” – a fake freelancer – when she substantially dedicates all of her efforts to and contracts with one partner only, or submits to conditions that resemble those of Dynamics drivers in order to maintain a relationship with a prominent partner. The partner would in such cases be required to employ her. As a result business models like Amway and Dynamics (and Salesforce?) can’t take hold.

    The US is particularly vulnerable to corona because relations that are based on employer discretion have exposed employees to such a degree that in pandemic conditions employees may be forced to practice “presenteeism” – the opposite of absenteeism – and come to work when they should stay home because they are sick and contagious. Furthermore freelancers are vulnerable when a macro-contraction puts them out of work and they have no safety net to fall back on – no sick days, no umemployment, unsubsidized, expensive health insurance the premiums for which can be paid when the cash is rolling in but when the income dries up, adios health insurance. This is the prospect for Dynamex drivers as well as drilling crews in the fracking industry.

    Reply
    1. cripes

      “premiums for which can be paid when the cash is rolling in”

      no, no, no “independent” contractors such as drivers (not consultants) can’t afford $6000 ($12,000 +up families) annual premiums, let alone $6000 in deductibles when they ARE working.

      Reply
    2. rosemerry

      The new film by Ken Loach,”Sorry we missed you”, about this sort of “independent” worker in the UK, did not win a prize at Cannes but has been very well reviewed. Even the trailer is painful to watch.

      Reply
  5. Louis Fyne

    (in my opinion) one of the worst offenders is Amazon—using a portfolio of traditional subcontracted, traditional contracted, and app-based contracted workers to deliver packages while UPS, USPS, FedEx are still largely pro-worker (though that’s eroding cuz of Amazon’s competition).

    I absolutely understand for some people there is no real choice but to shop at Amazon, whether financial, logistical, etc.—–but for the top 15% who nominally call themselves liberal but also love having everything delivered by Amazon—–they are causing the problems that they purportedly want to solve.

    Amazon makes the 1990’s havoc caused by the big box retailers almost quaint.

    And one more reason to use anti-trust to break up Amazon’s cloud arm and its retail arm.

    Just saying

    Reply
    1. allan

      > FedEx are still largely pro-worker

      Sadly, this is no longer true, at least at the last-mile level.
      Both FedEx Ground and FedEx Home Delivery use contractors,
      and, FWIW, worker experiences described on Indeed.com are not positive.

      Reply
    2. lyman alpha blob

      UPS is different than Fedex, at least the last I knew, in that UPS drivers are union and Fedex drivers are not. As a result UPS drivers used to get paid substantially more than Fedex drivers for doing the same job, and it was pretty hard to get hired as a UPS driver because of that. They were really good jobs and you had to put in your time at UPS before getting promoted to driver, it was not an entry level job.

      I do believe that’s changed somewhat, under pressure from not just Amazon, but Fedex as well who has gotten away with paying lower wages than its main competitor for quite some time. Fedex has never been as pro-worker as UPS and the Post Office.

      Reply
  6. HotFlash

    What I see from my viewpoint as an independent artisan (“petite bourgeoisie”!!!) is that both government and Big Biz are dancing away from workers, leaving a vast, and becoming vaster, chasm of the people who actually do stuff uninsured and unrepresented. This hoo-ha about whether employer or govt (maybe) covers this or that is BS. Medicare for ALL, social security for ALL, unemployment benefits for ALL, minimum wage for ALL. That includes farm workers and stay-at-home spouses/caregivers.

    Reply
    1. Arizona Slim

      Just spitballing here, but I think we who find ourselves in the frig, oops, gig economy, could benefit from a universal basic income.

      Especially when we have to deal with, ahem, clients who take forever and a day to pay. I was going to call them another word, but this is a family blog.

      Reply
  7. Eric Titus

    Worth noting that David Weil ran the DOL’s Wage and Hour Division during the Obama Administration! Weil, Lambert and Kalleberg are some of the biggest names in research on precarious work and have all put out some new work recently.

    Reply
  8. Mike Elwin

    I’m a retired tech writer in the SF Bay Area, where I worked mainly as an independent contractor. By choice. A recent study by the Washington State Dept of Commerce found that, like me, the majority of independent contractors there are happy with their status and don’t want to be employees.

    You can understand, then, that when I first saw your article here, I thought, “Oh great. Another expert telling me that I oughta be an employee.”

    Then I read the article. I so agree with you.

    De-linking fundamental government support from what kind of job I have is so sensible that I’m astonished, angry, and dismayed that it’s not the thrust of the labor movement’s and Democrats’ strategy for the 21st century. Granted, the US political culture is antediluvian but … well, the US political culture is antediluvian, isn’t it?

    Anyway, I’ve also been a labor union member and activist for 30 years. I’m opposing the nation-wide proliferation of legislation aimed at making everyone an employee, trying to persuade unions that they have much to gain by organizing independent workers as such. It’s a hard sell, made even harder by unions’ understandable desperation in the face of Republican domination of the courts and legislatures.

    I’m looking forward to reading your full proposal. From your mouths to god’s ear.

    PS
    Ives, your title for this article sucks.

    Reply
  9. Justin

    Sure there are big players like Amazon who will stop at nothing to cut costs. It is disingenuous, however, to discuss independent contractor benefits before dealing with the current, enormous tax and health care burden on small businesses.

    Reply

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